Market Update & Important Indicators:
U.S. stocks swung between slight gains and losses as a selloff in government bonds kept investors on edge. While reports from roughly half of the S&P 500 suggest earnings may grow after five quarters of declines, reduced expectations for central-bank stimulus spurred selling in government debt and yield-sensitive sectors of the stock market such as real estate and utilities. Nick Gartside, international chief investment officer of global fixed income at J.P. Morgan Asset Management, said stronger growth figures, a rise in inflation with higher commodity prices, and rhetoric from central bankers suggesting they may do less in the future had combined to fuel the recent rise in bond yields.
European stock wobbled into the close, as investors digested a raft of earnings reports and better-than-expected growth data from the U.K. The Stoxx Europe 600 index ended down less than 0.1% at 341.71, after a 0.4% slide on Wednesday. The pan-European benchmark swung between small gains and losses throughout the day and had opened firmly lower after a downbeat session in Asia. China said industrial profits fell to 7.7% year-over-year growth in September, a sharp slowdown from the 19.5% recorded the month before. But during the day, markets in Europe trimmed losses as investors analysed the deluge of earnings that came out on Thursday.
Asian equity markets were broadly lower on Thursday, with traders focused on oil-price declines overnight and disappointing data out of China. Japan's Nikkei Stock Average was down 0.3%, while Taiwan's Taiex was down 0.7%. Bucking the declines, Korea's Kospi gained 0.5%. U.S. oil prices fell to a three-week low overnight, pushing energy-related shares further into the red during Thursday's session. Investors are increasingly concerned that the Organization of the Petroleum Exporting Countries won't reach consensus on a production-cut deal. However, crude-oil prices recovered slightly in Asian trade. Russia's unclear stance on the production-cut deal is fuelling uncertainty. The country had previously signalled its willingness to join an OPEC cut, but recent comments by its oil officials show the country is likely pivoting away. China recorded 7.7% on-year growth in industrial profits for the month, sharply down from the 19.5% growth the previous month, according to the National Bureau of Statistics. The Shanghai Composite Index ended down 0.1% on the data, while stocks in Hong Kong were hit harder. The Hang Seng Index was off 0.8% and the China Enterprises Index, which tracks large Chinese firms listed in Hong Kong, closed down 0.9%. China's central bank continued to weaken the yuan, fixing it 0.05% weaker against the U.S. dollar on Thursday.
Australian shares were down sharply for a second day running Thursday, falling to a fresh five-week low as resources stocks led broad falls after oil prices weakened. Finishing the session at its low of the day, the S&P/ASX 200 lost 64.3 points, or 1.2% to hit 5295.5. It was the first close below the psychological 5300 mark since September 19, and brings the loss to 2.5% so far this week. Materials stocks were among the hardest hit, losing 2.1% collectively, while the basket of energy shares was down 1.8%. Only the information technology sector managed gains.
On the LME, copper for delivery in three months was up 1% at $4,788/t. In the other base metals, aluminium rose 1.5% to $1,696/t, nickel rose 1.0% to $10.330/t, and zinc rose 1.2% to $2,356/t. Tin fell 0.3% to $20,595/t whilst lead was flat at $2,033/t.
In this Issue:
Sandfire Resources (SFR) | September Q results | BUY
Market Cap $798m | Current Price $5.06 | Target Price $5.80
Sandfire Resources (SFR) released September Q results with 15.6kt copper and 9.7koz gold at C1 costs of US$1.06/lb, broadly in line with Argonaut’s forecast of 16.0kt copper and 9.0koz gold at US$1.08/lb. The Monty Feasibility Study is progressing and development is expected to commence mid-CY17. During the Q, the Company continued its regional consolidation of the Bryah Basin with a farm-in to Enterprise Metals (ENT) tenements to the south of DeGrussa and the acquisition of the remaining 65% of Ventnor Resources (VRX) Thaduna Project. At 30 September, SFR had $54.4m group cash and $50m debt.
Tox Free Solutions (TOX) | Sharp move | BUY
Market Cap $483m | Current Price $2.49 | Valuation $2.85
While not cheap on 9x FY16 EBITDA, the acquisition of Daniels is compelling due to the growth potential, the exposure to a new sector, and the opportunity to gain synergies and cross-sell across complementary activities. Further diversification is a key takeaway and dilutes the concerns we have on WA/resources exposure and the impact on margin. The largely acquisitive strategy has been well executed to date and, on <13x FY18 net earnings, TOX offers value for long term investors. Upgrade to Buy (prior Hold).
Recent Contacts & Presentations:
Austal Limited (ASB), Agrimin Ltd (AMN), Stavely Minerals Ltd (SVY), MGC Pharmaceuticals Ltd (MXC), Vital Metals Ltd (VML), Tox Free Solutions Ltd (TOX), Swick Mining Services Ltd (SWK), Davenport Resources Ltd (DAV), Orthocell Ltd (OCC), BC Iron Limited (BCI), ALT Resources Ltd (ARS), Gascoyne Resources Ltd (GCY), Dacian Gold (DCN), Orocobre Ltd (ORE), Alchemy Resources Ltd (ALY), Acacia Coal Ltd (AJC), Minotaur Exploration Ltd (MEP), Northern Minerals Ltd (NTU), Walkabout Resources Ltd (WKT), Antipa Minerals Ltd (AZY), Noxopharm Limited (NOX), Botanix Pharmaceuticals Ltd (BOT), Emerald Resources NL (EMR)